A Bitcoin Mining Explainer

The Bitcoin craze is in full effect. The explosion in value for the cryptocurrency is driving news cycles, building fortunes and raising questions about how much this new store of value can change business in the United States and even the world. Bitcoin mining is now big business and companies in China are taking the lead in that space, since electricity is cheap and plentiful in that part of the world. Where all this is going is a interesting thought experiment. What people know now is that cryptocurrency and digital money is here to stay.

Bitcoin mining was a much easier process for a singler ambitious computer owner to pull off in the days of 2009. When Bitcoin first came online, you could add your computer to a network of computers performing transactions and verifying the validity of those transactions, as a necessary underpinning of the Bitcoin ecosystem. The value that you provided would be paid back with the issuing of Bitcoins. That is how the system sustained itself in the first few years of the cryptocurrencies existence.

These days, Bitcoin mining is the purview of very large banks of companies that can afford the computing power and electricity needed to perform the cryptographic calculations that would produce a block in the blockchains. Because Bitcoin is so valuable, competition in the Bitcoin mining space is intense. Which makes the cost of running Bitcoin mining operation very high.

Bitcoin mining goes on all the time. There is no stop to the Bitcoin transaction network. That is where the work of encrypting transactions on the network. That is how the network stays anonymous and decentralized.

For miners to create a block it takes a lot of computing power. Like, a whole lot of computing power. That is part of the process that makes Bitcoin so scarce. And it discourages bad actors from trying to insert fraudulent transactions into the chain. The long term question is whether or not that structure is bulletproof enough to sustain Bitcoin as a commodity or a currency for the foreseeable future. Those that think the structure is sturdy enough are going to buy Bitcoin and hold onto it, like gold. Those that don’t are going to ignore Bitcoin and wait for its eventual downfall.

In the meantime, there should be opportunity for making money on the back of Bitcoin. A trader can actually buy shares of a Bitcoin Investment Trust, managed by a firm that deals only in cryptocurrency. That allows a trader the chance to make a profit off the fluctuations of Bitcoin without actually owning Bitcoin. Mainstream outfits like Charles Schwab and Fidelity let their account holders buy into that trust.

You can also go through the machinations of owning Bitcoin yourself. By finding a wallet, starting an account on Coinbase and actually transfering money into there to buy Bitcoin, you can learn a lot about the process of buying cryptocurrency. That knowledge will be useful, because the underlying technology will have legs. Even if Bitcoin eventually goes away.